It’s adios: Santander scales back

One of Europe’s largest and most successful banks has scaled down its Australian operations, potentially cutting billions of dollars in credit for local resources and infrastructure projects.

The Australia chief executive of Spanish giant Banco Santander, Jose Blanco, left the bank’s Sydney office yesterday after more than 20 years with the group.

His surprise departure is understood to reflect a strategic decision from Spain and comes less than a year after Santander obtained a branch banking licence in Australia. No Australian contact was available for comment yesterday and questions were referred to the Madrid head office.

HSBC’s local chief executive, Paulo Maia, said yesterday that European banks were still withdrawing from Australia.

“We are seeing some European banks in Australia contracting,” Mr Maia said. “I think that’s still happening in light of the difficult situation in Europe and it’s probably going to happen for a little longer in my personal opinion.”

European banks have pulled about $US34 billion of lending from the Australian market over the nine months to March 31, the Bank for International Settlements estimates.

European lenders including Société Générale, UniCredit and BNP Paribas have been reducing credit locally, though BNP says it has shifted its business model beyond pure balance sheet support to provide other less capital-intensive services to clients.

Mr Maia said Asian banks and HSBC were trying to fill the corporate lending gap, particularly for natural resources and infrastructure projects.

Credit Suisse bank analyst James Ellis discounted the likelihood of a business credit crunch. “You’ve seen business banking market share gains reported in the last round of major local banks results in the half-year to March, plus Asian banks have been increasing their share, although not at the same pace that European banks have decreased,” he said. “Even though business credit growth at a system level has been accelerating, it’s still at historically modest levels.”

Plus, major resources projects were funded out of miners’ cash flows and bond issuance.

When Santander upgraded from a representative office to a local branch licence last year, it was intent on expanding its project finance and corporate lending in Australia after two decades of mainly facilitating business from Australia to other markets in which it operated and vice versa.

The problem for Santander, as it has been for other European banks, is that European turmoil and new financial system regulation has severely hampered access to capital and the ability to lend profitably, even if the desire was there.

Spanish banks, for example, have been hit by both sovereign downgrades and consequent downgrades of their own credit ratings, raising their cost of funds.